Victor EzejaA financial analyst and educator, Kalu Ajah, has highlighted the implications of forex sales to Bureau de Change (BDC) operators by the Central Bank of Nigeria (CBN) at a lower rate.
Prime Business Africa had reported the CBN’s intervention in the forex market by selling FX to eligible BDCs at a lower rate to boost liquidity in the market.
The apex bank on Monday announced sale of $10,000 to each eligible BDC operator at the rate of ₦1,101/$1 with a mandate to sell at a spread of not more than 1.5 per cent. This means they are to sell at not more than ₦1,117.5 per dollar.
This is the bank’s third tranche of FX sales to eligible BDCs in the last one month. The apex bank resumed FX sales to BDCs on 27 February with $20,000 at ₦1,301/$1 and subsequently sold $10,000 to each at ₦1,251/$1.
According to the CBN, the latest dollar sales will be made to 1,588 eligible BDCs.
Commenting on the implications of the intervention, Aja said if CBN continues to Supply sale FX to the market, it sends signals that there is more FX coming at lower prices and consequently forces the rate of exchange to go down.
Writing on his official X handle, the financial analyst said: “You see the CBN strategy clearer here
“Progressively sell fx from reserves To market at lower prices to force the exchange Rate down.
“The CBN is a whale, a swing trader, they can sell just $10,000 and move the market of $10 billion because the market works with signals and the signal is that there is more FX coming at lower prices
“Can the CBN alone drive down the rates? yes IF the CBN keeps supplying the market with FX at lower rates.”
He also underscored the impact on foreign reserves, saying the reserves can drop if oil revenue (which is currently Nigeria’s major FX earning source) fails to rise due to a decline in production.
He further noted that other gains of the outcome of the CBN’s intervention are stabilisation of oil exports and dollar rate, and the continued inflow of Foreign Portfolio Investment (FPI).
“Remember markets move with support and resistance, the CBN has not signalled where it wants the exchange band, the market at a point will speak,” he added.
The naira has been on a steady appreciation in recent times which analysts attribute to CBN’s policies.
READ ALSO: CBN Releases Another Round Of $10,000 FX To Each BDC, Mandates Them To Sell At N1,117/$1
The Nigeria Foreign Exchange Market, (NAFEM) data published on FMDQ Securities and Exchange platform revealed that the naira appreciated on Monday at the Official market by N20.44 to N1,230.61 per dollar from N1,251.05 per dollar Friday last week.
Also, in the parallel market, the naira appreciated by N45 to N1,200 per dollar on Monday from N1,245 per dollar last Friday.
The NAFEM data showed there was an intraday high of ₦1,261.00 and a low of ₦1,200, while the daily forex turnover on Monday was $125.55 million.
Some reports quoted BDCs lamenting losses due to continued naira appreciation. Some of them say they have old dollar stocks from the CBN at the previous rate of ₦1,251 before the apex bank announced the new rate at which it is selling to BDCs.
Some analysts also averred that the drastic drop in the forex rate has forced those hoarding dollars to sell them off and avoid losses.
Meanwhile, the CBN has banned the use of foreign-denominated collaterals for naira loans. This is another means of putting pressure on the naira that has come to a stop.
The apex bank, however, exempted from the ban, Eurobonds issued by the Federal Government of Nigeria or Guarantees of foreign banks, including Standby Letters of Credit.
Announcing the ban in a circular, titled, “The Use of Foreign-Currency Denominated Collaterals for Naira Loans”, Director, Banking Supervision Department, CBN, Dr. Adetona Adedeji, said: “The Central Bank of Nigeria has observed the prevailing situation where bank customers use Foreign Currency (FCY) as collaterals for Naira loans.
“Consequently, the current practice of using foreign currency-denominated collaterals for Naira loans is hereby prohibited, except, where the foreign currency collateral is: Eurobonds issued by the Federal Government of Nigeria; or Guarantees of foreign banks, including Standby Letters of Credit.
“In this regard, all loans currently secured with dollar-denominated collaterals other than as mentioned above should be wound down within 90 days, failing which such exposures shall be risk-weighted 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
